Conflicts of Interest in Florida Class Action Cases
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Recent case-law from the Florida Supreme Court sheds new light on conflict of interest issues resulting from class action law-suits. Many times in class action law suits, class counsel will endeavor to reach a settlement which is fair to all members, while simultaneously and inadvertently receiving objections from a minority of the class members to the proposed settlement or other course of action. What is the counsel to do in that situation? Is there a conflict such that as of the objection, the interests of the majority are now directly adverse to the interest of the minority? The Third District Court of Appeals attempted to remedy the problem by applying a balancing test of interests commonly used by the Federal court systems. Upon review by the Florida Supreme Court, the court found that the balancing test was inappropriate and that the Florida Rules of Professional Conduct fully addressed this conflict of interest issue. The decision of Young v. Achenbauch[i] exemplifies this.
In Young v. Achenbauch the class action suit involved flight attendants who were suffering from diseases caused by second-hand smoke in airline cabins. No.SC12-988, 2014 Fla. LEXIS 1029, *1-23 (Fla. 2014). The attendants initiated a class action suit against several tobacco companies which resulted in a settlement agreement (Broin class action). Id. at *2. The class members agreed to waive their intentional tort and punitive damages claims but retained the right to individually pursue claims for compensatory damages against the tobacco companies. Id. at*3. In return and amongst other items, the tobacco companies established a $300 million settlement fund to be used solely to establish a foundation. Id. at *4. Thus, the Flight Attendant Medical Research Institute (FAMRI) was formed and several of the flight attendants who were part of the Broin class action litigation became members of FAMRI’s board. Id. Notably, two of the members of FAMRI’s board, Young and Blissard, are the petitioners in the case at hand. Id. at *5. Following the establishment of FAMRI many of the flight attendants, including Young and Brissard, instituted their own individual progeny suits for compensatory damages. Id. This is where the attorneys enter.
Hunter and Gerson were among a group of attorneys who represented some of the flight attendants in their individual progeny suits. Id. According to Hunter and Gerson, they became concerned that FAMRI’s activities were not being supervised by the trial court and thus attempted to have FAMRI produce accounting, but FAMRI was allegedly unresponsive. Id. Consequently, a group of attorneys, including Hunt and Gerson, filed a petition against FAMRI, on behalf of a handful of the flight attendants who were part of the original Broin class action. Id.
Young and Blissard who both remained board members of FAMRI, as well as members of FAMRI moved to disqualify counsel for the petitioners on the grounds of conflict of interest. Id. at *6. Blissard argued that she attended numerous meetings with various flight attendant’s counsel, including Hunter and Gerson, and stated that she trusted the group of attorneys as her team. Blissard stated that she shared many confidences about herself and FAMRI and that Hunter “always stressed the united team effort of his colleagues.” Id. Upon learning of the petition against FAMRI, Blissard contacted Hunter and objected. Id. at *7. Subsequently, Hunter withdrew as her counsel in her individual suit after representing her for a decade. Id.
Similarly, Young had the same sort of interactions with Hunter and Gerson. Id. Young stated that she shared confidential information regarding FAMRI with them and that they asked many questions about the operation of FAMRI. Id. She considered boh Hunter and Gerson to be her attorneys, but admitted that neither were her individual counsel of record. Id. Two other individuals submitted affidavits in support of disqualifying Hunter and Gerson. Id. at *8 The two individuals were named Chambers and Waerness and they also objected to the petition against FAMRI. Id. Subsequently, Hunter and Gerson withdrew from those cases. Id. *8-9.
A hearing was held on the motion to disqualify and the trial court entered an order disqualifying all of the attorneys for petitioners in the action against FAMRI. Id. at 11. The trial court found that the attorneys had violated Florida’s Rules of Professional Conduct 4-1.9. Id. On certiorari review “the Third District noted that ‘[a] common dilemma arises when class counsel endeavor[s] to reach a settlement which is fair to all members, and some of the members object to the proposed settlement.’” Id. at*12-13. The Third District highlighted the problems with allowing two class members to object to a course of action approved by a significant number of their co-class members, and then to allow them to demand the disqualification of counsel selected by the latter to represent them. Id. Based on this rationale, the court of appeals turned to a method commonly used in the Federal courts system wherein a balancing test is utilized. Id.
The balancing test “balances a party’s right to select his or her own counsel against a client’s right to the undivided loyalty of his or her counsel.” Id. at *14. The Third District held that “before disqualifying a class member’s attorney on the motion of another class member, the court should balance the actual prejudice to the objector with his or her opponent’s interest in continued representation by experienced counsel.” Id. The court then quashed the trial court’s disqualification order, finding that the general classes’ right to be represented by Hunter and Gerson outweighed the rights of the objectors. Id.
Upon review by the Florida Supreme court, the court quashed the Third District’s decision and reinstated the trial court’s disqualification order. Id. at *23. The court found the usage of the balancing test to be inappropriate and instead turned to Florida Rules of Professional Conduct 4-1.7 and 4-1.9. Id. at *14.
Rules 4-1.7[ii] and 4-1.9[iii] address conflicts of interest with current clients and with former clients. There were two major areas within these two rules which should have presented themselves as red flags to the attorneys. The first is that the individual litigation and action against FAMRI were “substantially related” under rule 4-1.9 and the second is that the interests of the individuals participating in the action against FAMRI were materially adverse to the interests of Hunter and Gerson’s former clients who objected to the petition against FAMRI and who did not give their informed consent. Id. at *23.
The court found that the attorneys attempted to sidestep rule 4-1.7. Id. at *17-18. The rule explains that counsel may withdraw from representation when a conflict arises after the representation has been undertaken but that counsel has duty to decline representation if the conflict “exist[s] before representation is undertaken.” Id. at *17. In sum, the court stated that attorneys are not to try to avoid this rule by simply withdrawing: “[a]ttorneys may not avoid rule 4-1.7 by taking on representation in which a conflict of interest already exists and then convert a current client into a former client by withdrawing from the client’s case.” Id. at *17-18.
Next, the court found that the matters were “substantially related” under rule 4-1.9. Matters are found to be substantially related for purposes of rule 4-1.9 when they involve the same transaction or legal dispute. Id. at *21. Gerson and Hunter represented many of the flight attendants in their individual progeny suits and then took action against FAMRI, accusing FAMRI of not living up to the settlement’s mandate and seeking to have the funds given to FAMRI as part of the settlement agreement dispersed to only a handful of the former class members. Id. at 23. Thus, the individual litigation and the action against FAMRI were substantially related because the court found that the interests of the individuals participating in the action against FAMRI were materially adverse to the interests of Hunter and Gerson’s former clients who objected to the petition against FAMRI and who did not give their informed consent.
Based on this, the court found they attorneys in violation of rule 4-1.9(a) and held that disqualification was proper. The decision of Young v. Achenbauch illustrates the no-nonsense approach of the Florida Supreme Court with regard to conflicts of interest under the Florida Rules of Professional Conduct. An attorney will not be able to simply “withdraw” in order to resolve certain conflicts of interest, and further must receive a former clients consent to represent other clients whose cases are substantially related and materially adverse to the interests of the former client. For attorney’s engaging in class action litigation, this is especially crucial as a “team” approach is often utilized which creates an attorney-client relationship.
[ii] “A lawyer shall not represent a client if: (1) the representation of 1 client will be directly adverse to another client; or (2) there is a substantial risk that the representation of 1 or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer. R. Regulating Fla. Bar 4-1.7(a).” Id. at *16.
[iii] “A lawyer who has formerly represented a client in a matter shall not thereafter: (a) represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent; (b) use information relating to the representation to the disadvantage of the former client except as these rules would permit or require with respect to a client or when the information has become generally known; or (c) reveal information relating to the representation except as these rules would permit or require with respect to a client. R. Regulating Fla. Bar 4-1.9(a)-(c).” Id. at *21.